HSBC leads Hong Kong’s banks in keeping prime rate unchanged

It was the fourth pause since the Fed began its rate-hike cycle in March 2022. The HKMA has followed the Fed in lockstep since 1983 on interest rates policy by design under its linked exchange rate system to preserve the local currency peg to the US dollar.

Chairman Jerome Powell said the Fed will start cutting rates well before it hits the inflation goal.

“The reason you wouldn’t wait to get to 2 per cent to cut rates is that it would be too late,” Powell said during a media briefing after the rate decision. “You do not overshoot.”

High interest rates ‘set to endure’ as central banks tackle inflation

The Fed’s statement fed a 1.4 per cent rally in the Dow Jones Industrial Average to a record high of 37,090.24. The benchmark closed above the 37,000 mark for the first time, breaking the previous record set in January 2022. Both the S&P 500 and the Nasdaq Composite similarly added 1.4 per cent.

The Hang Seng Index joined the bandwagon, jumping as much as 2.2 per cent at the open on Thursday, the biggest gain in a month. The advance narrowed to 1.2 per cent at the noon break.

“Unless something extraordinary occurs, the Fed is done hiking rates and will now be focused on when to cut rates,” said David Chao, global market strategist for Asia-Pacific (ex-Japan) at Invesco. “Markets have come to assume that the rate hike cycle is over and that we are likely to see rate cuts start in the first half of 2024.”

Some analysts, however, expect the rate cut may be delayed to later in the year.

“It may be premature for the Fed to lower rates when second-round effects could fuel inflation in the coming months. We think the first 25-basis-point cut should not take place before mid-2024.”

The HKMA cautioned the public on the interest-rate risks, saying the high interest rate environment may last for some time.

“The public should carefully assess and manage the relevant risks when making property purchases, mortgages or other borrowing decisions,” the de facto central bank said in a statement.

Paul McSheaffrey, a senior banking partner at KPMG China, also believes the rate cut may not happen any time soon.

“No increase in the Fed rates perhaps indicates that we may have reached the top of the interest rate cycle,” McSheaffrey said. “However, I don’t think this should be taken as a sign that rates will fall in the short term. The Fed will want to ensure they really have got inflation under control before reducing rates.”

Inflation in the US slowed in November. While consumer prices rose 3.1 per cent year on year last month, they eased from a 3.2 per cent pace in October. But core prices, which exclude volatile food and energy costs, rose 0.3 per cent, compared with 0.2 per cent in October.

The latest decision was almost priced in by traders, based on contracts on Fed fund futures. The odds on Fed status quo were 98 per cent, while balance was for a 25-basis-point increase, according to data compiled by CME Group.

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External factors risk for Hong Kong ahead in coming year, finance chief warns

External factors risk for Hong Kong ahead in coming year, finance chief warns

The pause in interest rates was a much-needed relief for Hong Kong’s businesses and mortgage borrowers. Financial Secretary Paul Chan Mo-po earlier this month said the city was likely to continue running a fiscal deficit next year, given the economic uncertainties created by geopolitical tensions and high interest rates.

The HKMA last tightened in July, when it lifted the base rate by 25 basis points to 5.75 per cent, the highest level since December 2007. In total, the base rate has risen by 525 basis points since March 2022, even as the city’s economy was mired in a recession.

Hong Kong’s one-month interbank offered rate, or Hibor, stood at 5.408 per cent on Thursday versus 3.686 per cent in late September. The three-month Hibor rose to 5.344 per cent from 4.446 per cent over the same period, according to data published by the Hong Kong Association of Banks.